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Sunday, November 11, 2012

Weekend Portfolio Analysis (11-11-2012)

The S&P500 started the week at 1414.02 and closed at 1379.85 on Friday for a -2.42% loss. And we finally left US elections behind. I had the opportunity to close the SPY 137/135 Credit Put Spread on Tuesday right before the sell off on Wednesday and this time I didn't hesitate, exiting for 0.14 debit. Could have exited for 0.11 debit but it is impossible to time exits perfectly all the time. Overall I'm glad that I closed the position for profit, and reduced my downside exposure right in front of the sell off that took place the following day.

By now, only one position is left on the November expiration cycle which is the RUT 750/740 Bull Put spread.

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Temporary profit of $195 out of a possible $255. Probability of success 98.36%. This has been a very healthy position from the very beginning. No threats and psychologically easy to handle. Chances are very high that it will be left to expire worthless this week for full profit.

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RUT is trading in a defined downtrend channel that points to a low of around 785 this week. Plus the recent sell off is over extended in my opinion, something I will talk about in the "Market conditions right now" section.

Plan for the week

Very simple plan this week. I want the RUT position to expire worthless on Friday, and I won't touch it unless there is a hard sell off and RUT hits 752. If that happens, I will adjust further down. But RUT 752 is very unlikely this week.

On the other hand, as I mentioned by the end of last weekend's analysis, I won't open December positions this year as  I won't have time to follow them up on the blog. But, if you were to trade the December cycle I believe selling SPY 130 or 131 Calls is a solid position. Of course buying another Call option two strikes bellow for protection as usual. In fact, the SPY 130/128 credit Put spread was priced at 0.31 credit during Friday morning. That would have been a very nice entry for a very attractive credit.

Market conditions right now

The SPX accelerated on its way down this week and broke the downtrend channel that had been formed.

(Click on image to enlarge)

 I think the market overreacted and needs some digestion now, so I don't expect another hard sell off this week.

Stochastics below 10 and McClellan at -144 are showing an oversold market. Only 26% of stocks above their 20 day Simple Moving Average and only 30% above the 50 day Simple Moving Average.

The CBOE Index Put/Call ratio is showing a reading this week of 1.51. That's the highest we have seen in the last 6 months and the Equity Put/Call ratio at 0.82 also very elevated.

There is a lot of negativity and pessimism in the markets and traders are well hedged. The market has made a strong move that needs to be digested. Any slightly positive news can spark a short covering rally. I believe this will be a rather quiet week in spite of the fiscal cliff looming. And I also think there won't be another strong sell off like the one we saw in recent days.

Releases this week:

Wednesday - PPI, Retail sales, FOMC Minutes
Thursday - CPI, Philadelphia Fed Survey
Friday - Industrial Production

Good luck this week folks!

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